The phenomenon has been developing within the current legal framework which did not pose too stringent controls over the platforms and the issuers. Until now. In fact, the German government has proposed in the past days a draft bill which aims at increasing protection of small investors (i.e. Small Investors Protection Act).
In particular, the Small Investors Protection Bill brings in an Exemption for Crowdinvesting, according to which those issuers raising less than €1 million with individual investments not higher than €10,000 would be exempt from producing the information prospectus. However they would still need to create a less extensive version, called an investment information sheet, which has to be sent by mail and manually signed by investors.
These proposed rules were not welcome by the German securities crowdfunding world, which publicly manifested its disappointment. As many local crowdfunding actors explained, the Small Investors Protection Bill with its Exemption for Crowdinvesting may easily kill crowdfunding in Germany, which until now has been working better than in other places. The €1 million cap is far lower than in other European Countries and the investment limit of €10,000 may be too low for certain investors. Furthermore requirements, such those that impose to send the investment information sheet via mail and to manually sign it, are heavy limitations for the development of crowdfunding, which is by definition an online tool to raise capital, aiming in this way to facilitate, speed up and make more transparent the investment process.
The rules are still a draft, but the German crowfunding industry is getting organized to prevent them becoming effective as they are now, which is also far from the position of the European Commission on crowdfunding. Will they succeed in their effort of saving the national securities crowdfunding market from a potentially disastrous law?
Hobey E. (2014). German Crowdinvesting Threatened by Retail Investor Protection Law Draft. CrowdfundInsider.
Crowdinvesting: Kontroverse um Kleinanlegerschutz (2014). CrowdfundBeat Germany
Photo credit: Dorena WM. http://bit.ly/1nrXfj7
Born and raised in Milan, Italy, Irene is an International Business graduate, with a strong interest for innovative ideas that can simplify our lives.
During her studies, she co-founded an online community for sportspeople and worked in marketing positions at Ogilvy & Mather Advertising and at the European Business Angel Network, in Brussels. She is a passionate blogger about crowdfunding and the startup ecosystem.